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take the revenue than to contemplate additional layoffs. >> and you know where you're going to put the money? >> the current year, the year we just began, the budget is general fund revenue. >> and the remaining payment will come from the general fund? >> that is correct. commissioner sullivan: i share the same concern that commissioner lee does. if we have a 3% inflation adjustment over 75 years, 75 years ago as 1935. we don't have any idea what
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inflation is going to be. i was thinking it would be really prudent to have some kind of trigger that says if inflation goes over some level, we would start marching towards the cpi or the mta rates. i don't think that there is any protection here for inflation. >> i can absolutely go back to them and raise that as an issue. commissioner sullivan: i get what we need to take the money up front, that makes sense. i just don't know why we need to roll the dice on future inflation. >> the mta raises parking rates, a much higher rate. that is why i am thinking that we might be leaving a lot of
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money on the table if we lock ourselves into this break. commissioner buell: is there a time constraint on this? >> yes, of course. the puc needs to -- we need to finalize the lease. the public utilities commission is selling that =--- debt, sellg bonds to pay the recreation and park department. they need to move ahead relatively soon with their bond sale, said they were interested in having us have this approved at this meeting. if it is your pleasure that we
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come back, we can do that. commissioner buell: if it is two weeks, and we can express the sentiments of the commissioners, i think they make a very good point. i don't think we can object if everything goes well, but we should put provisions in case things don't go well. if you want to just take that sentiment back and if there's anything you want ad, now is your time to express it. >> i would like to see if we can get this thing worked out. >> i am on vacation at the next commission meeting. we would be looking at september, and i am not sure if
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that is a time frame that works for the staff at the public utilities commission. commissioner buell: i think general manager ginsburg can represent your point of view and we can express sentiment. it is impossible, we should know more about why it is impossible. >> fair enough. thank you. commissioner harrison: just to my fellow commissioners, should there be some point at which five years or 10 years, the trigger is pulled -- commissioner buell: that is the issue we are getting too, the different scenarios. >> i was 21 when i took out my student loan and interest rate
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was 21%. i just think we need a protection against the annual inflation spike. >> that is the sentiment you need to take back, the worst- case scenario cover for us. i would like to table this item. all in favor? opposed? none. >> we are now on item 13. >> good evening, commissioners. i came to you on february 4 for approval of new management at the golf course. i returned with a selection
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provided by a panel, the human rights commission recommending that the gulf course properties the recommended to you as a manager of the park. in the meantime, as we are putting the agreement together, and actual manager name has been selected. it is a wholly owned subsidiary of the pga tour golf course properties. if approved, they will be the manager at the course. in accordance with the sunshine request, i issued a draft of the agreement 10 days before this meeting. i distributed it to the people that requested at, and i sent notices for a public meeting that was held on wednesday
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evening, july 28. we had approximately 25 people. we discussed the upcoming agreement, there were changes that the players would notice between the past agreement and the proposed agreement. we don't see changes that would inconvenience the golfers at all. i just want to say this publicly, about course maintenance. there is an actual agreement for the clubhouse, so the city will continue to operate the maintenance of the course. a number of comments were given to me, some of them inc. -- there are questions concerning the agreement that has a couple of elements.
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i did contact the city attorney. first of all, i contacted any brown, the head of the department. at the time, she was the deputy city attorney in drafted the language for the gulf fund. one was, power the language in the agreement -- [unintelligible] the other was for the incentive formula. the relevant passage states the operation and maintenance of the golf course pursuant to the budget of each golf course approved by the recreation and park commission may include personnel costs and the purchase
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and leasing of equipment. training costs, management fees, general and administrative costs attributable to the golf courses. the discussion of the revenue is basically tangent on one word, the complaint being that all revenues, all proceeds derived from the gulf course -- the next phrase modify that by saying that in the case of gulf instruction, there is no golf course in the world that is 100% golf lessons.
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i have written into this agreement that if there are any instructors on the payroll giving lessons, all lessons will be booked through the clubhouse. we want to know how much money is being generated out there. the course will get 15 percent of that. it will be paid to the course the same as if we contract it out to companies that will be offering a golf program. certainly, you have approval over the contract. the second element was the incentive payment. if you remember when i came to you with the proposal for the pga golf course properties, they wanted to accrue an incentive.
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it was rightly pointed out that we legally could not do that. we could not accrue the money. it would require for us to give them an incentive payment based on a formula. that is excluded in the administration fees and costs. that is why is constructed that way. we talked back-and-forth about how to set the formula. the gulf fund has various components of all of the golf courses. the manager would be responsible for it. every year, we have a budget of what we think the revenues will be. on our behalf, we reimburse so that there is a net revenue.
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that is the element we're talking about. we expect what the revenue will be through the budget, and then we see the actual cost. of that difference, 25% would go to the manager. i did a rough analysis of the last three years using actual budget figures. we're still considerably better off financially. after the meeting that i can tell the 28, i specifically said that the document had this rather bold first page. they were subject to a few changes made when i posted the
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copy of the agreement that you have in your packet. we talked to the city attorney about this. nobody felt the changes made were substantive in nature, most were just for clarification. we clarify the language concerning portions of the agreement. we clarify the language concerning the incentives. the only added language was a short paragraph which actually emphasize is the responsibility, that section basically saying that the manager is not responsible for what happened. it was extraordinarily reasonable. there were a couple of additional definitions added.
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the remainder of the work was making sure that they were strictly related to each other and there were no errors. commissioner buell: it is the opinion of the chair that the clarifications and remedies don't change the basic terms of the contract. >> as far as the highlights of the agreement, i have set the initial terms. the commencement date is october 1. it coincides with the expiration of the masters tournament agreement for the pga tour. this was collectively between us, making the determination
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date. the extension term, if any, the parties have the right to request the extension. the period will coincide with the masters tournament agreement. it may supersede the initial one. with most of our large extension requests, this will be 180 days of hand written notice. the commission certainly has the right to approve this, and we have the right to negotiate any and all terms. the pga tour golf course properties is not to arjuna's and management fee. currently, we save $192,000. we will continue to do reimbursable expenses, which means we receive 100% of the
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revenue, all the revenue from the restaurant, all of the revenue from the pro shop. in this case, 15% of all golf instruction. we have worked with the hrc on this. we will continue to have a manager participate, the applicable expenses out there, they felt 12% was fair. we certainly follow the guidelines of the ordinance. 12% is what is currently being followed. additional provisions, the standard insurance provisions. there is a indemnification language, language that says the
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city still has the right to settle fees. we definitely run the course maintenance. they will provide to us to a subcontract which will be attached to this agreement. we have an agreement now, so the new manager will be required for it to be attached. it will be required to follow all city ordinance. after we got a request to add some sections in the agreement, i believe you have that in front
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of you. i would like to very briefly explain these to you. we are required as part of the master tournament agreement. [unintelligible] i want to be very clear what we're talking about. the first element is a summary of terms. the second portion has to deal with anything we are required to do for a pga tournament event. they want to make sure that we are going to maintain that level with the budget that we have attributable. there are tw parts -- two parts
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concerning that. if the budget dropped less than 85%, they have a right to keep us -- give us notice for that. they can give us 270 days' notice to try to make the agreement. that gives us nine months to find a new operator. commissioner buell: you would characterize that as a remedy if we don't live up to our end of the obligation. >> right. they feel it is really flying in the face of the terms of the masters tournament agreement, the long-term maintenance of the course. there would be able to suggest that we go into arbitration for that. the attorneys looked at this and drafted this language. i have spoken with the general manager many times today and last night concerning this.
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he is quite aware of all of this. commissioner buell: that second part would also be ready if we are not living up to our end of the obligation. >> this is just a clarification. the third part might seem a little strange, but it is a very important part. it is the retaining of the current nonresident -- it was 35% non-residents. we realized early on that it would be extraordinarily difficult for us to make the numbers that we needed not only for harding, but to generate enough money for us to be able to meet our financial responsibilities to the gulf fund can't keep the rates at a reasonable level which think we
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successfully done. there are always people that will complain about it, but if you look at what we charge, we can hold our head high on that. we amended that. it was back in 2006. we wanted to equalize the level to 50-50. this is basically a reminder clause stating that if we do something actively to change the level so that the non-residents -- commissioner buell: it changes the terms. >> and they can leave. they can explain their intent. commissioner buell: i think they're pretty obvious. >> this is going to benefit due course.
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commissioner buell: having reviewed those, i believe that those were all clarifications and remedies that don't change the basic structure of the cream it. >> -- the basic structure of the agreement. >> the one thing about the language is that we did finalized this early this morning. i got a couple of technical changes. i would say that if we are approving this, it would be subject -- again, we are in total agreement. commissioner sullivan: commissioner sullivan i have a e incentive payment. one part says that they get 25%
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of net income. that is based on an approved budget. what is our budget this year? just as an example? >> the one piece of information i didn't bring. i'm sorry. >> it is on your sheet. >> i don't have this year's budget. last year, to revenue was $7.5 million. we had a bad year because of rain.
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we were budgeted at 7.5 million -- commissioner sullivan: the issue is not revenue, it is net income. >> they are reimbursable by the city. it is just their expenses for the operation. the net operating actual income was $3.7 million. it would've been $250,000 over, and that would result in a payment of $60,000. commissioner buell: wasn't the
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reduction because there was a tournament and we missed almost a month of play? >> because it was such a large tournament, right after that, we had rain. that is comparing -- we would have been paying $60,000 to the pga tour golf course properties. >> if next year turns out like last year, but we will pay $60,000 and would be 25% of net income as defined. the year before, we had much better weather. we would pay $76,000. >> the second piece of this seems to be saying that if
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income goes up more than we project, it ends up being $300,000. we share that incremental -- >> 25% of the incremental revenue. >> it is my understanding that if the pieces of net income is better than budget, whatever the increment is, they would get $25,000. the second incentive has to do with looking at the entire budget. they are associated with running the clubhouse operations, the goal, of course, having
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everybody incentivized to get it to a place for it is actually in the black. >> there would be no payment under the incentive. >> the current incentive clause is strictly gross revenues. they get 5% over 6 million.c would be paying an incentive payment based on the revenues. president buell: thank you. commissioner lee. commissioner lee: thank you, tom, for that presentation you did last week. i thought it was very well done. a couple questions came up during that meeting and i think you handled the question well. one was on the repayment of the open space fund. i think you had -- if you can recount quickly for the commission what your answer is, i thought it was -- >> i think a lot of people might be looking at the -- this management agreement as being the panacea of the golf fund
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and don't think that's realistic. i think the most that we can really work for and strive for is get management agreement that will generate the most revenue for the golf fund. because it's the money that we need, it's the money -- harding is supposed to be the engine that drives the golf fund which will help us own up to our responsibilities financially for the golf fund and also help for the other golf courses. what we try to do here is provide a management agreement that this entity will be able to run this as a business and derive the income that we need for the golf fund. commissioner lee: in one clause on -- here it is. here. it's on item six -g, the management plan, -- 6-g, the
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management plan, so we have the annual budget process coming to the commission in draft form and then going back, staff having it for another i guess 180 days and then it comes back to us as part of an overall budget. but it doesn't say for a final approval and i was wondering if we could add language in that claar fice that the -- clarifies that the final management plan will come back to the commission for final approval. >> we can certainly nest that in. i mean, just that simple line. commissioner lee: the final management plan comes back to the commission for final approval. >> i'm sure katie has mentioned this before on the whole process but we start, that's why i started the request for their initial budget to us so early in the fiscal year, of the previous fiscal year. because we have to decide wh